Covid-19 and Political Economy of Nigeria

Abstract of Covid-19 and Political Economy of Nigeria

This study examined covid-19 and political economy of Nigeria. Nigeria is currently experiencing the brunt of Coronavirus outbreak, and this has led into a negative impact on many businesses across the country, as well on banks, and the health sector. The year 2020 and 2021 has been quite challenging for the local and global environment, as a result of the spread of coronavirus, otherwise referred to as covid-19, and the resultant effect has led to an unparalleled health crisis among countries across the world.

The research objectives were to; examine the effect of Covid-19 on SMEs activities in Lagos State; find out the influence of Covid-19 on the operations of Nigerian banks in Lagos State; determine how Covid-19 affected the Nigerian health sector in Lagos State; and to determine the government strategies to curtail the effect of Covid-19 in Nigeria economy. This research work made use of interview to gather data from the study participants who were SMEs owners, bank employees, and health workers, and data was analysed using the content analysis.

The findings showed that, covid-19 has negatively affected the activities of SMEs in Lagos State. The study as well found that, covid-19 has led to the lack of savings, inability of borrowers to refund loans, bank been unable to meet up with their expectation as a result of the covid-19 pandemic, which crippled their lending strengths and brought about liquidity crises due to depositors choosing to withdraw their savings in order to support living and health expenses. The study showed that, the restriction on the international travel during the pandemic posed a serious challenge to the healthcare system in Lagos State due to the heavy reliance of the State on importation from other countries. The study revealed that, lockdown and the restriction of movement, closure of schools, religious activities, social and sport gatherings, were measures used by the government to curtail the effect of covid-19.

The study recommends that, the federal government and relevant health agency should ensure that the health sector in the country be given adequate attention in the area of infrastructural development, health facilities, building of contemporary hospitals and clinics, research and development, and the employment of competent and skilled health personnel. The federal government of Nigeria should implement fiscal and monetary stimuli package as a partial solution in order to revive the falling aggregate demand in the country. The government should aid the SMEs with adequate funds with lower interest rate in order to revive their businesses towards the economy growth.

Chapter One of Covid-19 and Political Economy of Nigeria

INTRODUCTION

Background of the Study

Nigeria is currently experiencing the brunt of Coronavirus outbreak as the country went into a partial lock down. This resulted into a negative impact on many businesses across the country. As a result of the coronavirus outbreak, majority of businesses experienced supply chain distortions due to non-regular supply of raw materials and intermediate goods, loss of revenue and lack of liquidity to continue business operations. The year 2020 has been quite challenging for the international environment, as a result of the spread of coronavirus, otherwise referred to as Covid-19, and the resultant effect has led to an unparalleled health crisis among countries across the world. Besides, the coronavirus outbreak has had unprecedented and serious impacts on all aspects of human endeavor’s to how individuals work, communicate, trade, and live. The economic effects of the coronavirus outbreak swiftly became obvious and businesses across the country have been on the front lines, with employees and customers staying at home.

Internationally, the search for a vaccine to combat Covid-19 continues, as no single economy of the world is spared from the fall-out from Covid-19 outbreak, (Daud & Leila, 2020). The international community is at the moment experiencing one of its most several health crises in human history, coronavirus or Covid-19. World Health Organization (WHO, 2020), states corona viruses as a large family of viruses that are causing illness, like, common cold, and severe diseases of Middle East Respiratory Syndrome (MERS-CoV) and Severe Acute Respiratory Syndrome (SARS-CoV). The Covid-19 or Coronavirus disease is a new strain that was discovered in December 2019 and hasn’t been previously identified in humans (Epidemiology Working Group for NCIP Epidemic Response, 2020; Bai, Wang & Zhou, 2020). As a result, the coronavirus is a respiratory virus that spreads through droplets from an infected individual coughs or sneezes or droplets of saliva or discharge from the nose. It is believed in medical sciences that corona viruses are zoonotic, that is to say, they were initially transmitted from animals to people, (CDC, 2019; ECDC, 2020).

The World Health Organization (WHO) declared the novel human coronavirus disease (COVID-19) outbreak, which began in Wuhan, China on December 8, 2019, a Public Health Emergency of International Concern (PHEIC) on January 30, 2020 (WHO, 2020). With over ten million cases across the world as of July 7 (2020): United States (over two million cases), Brazil (over 700,000 cases), Russia (over 500,000 cases), Italy (over 250,000 cases) and in Africa, South Africa (over 54,000 cases), Egypt (over 38,000 cases), and Nigeria (over 30,000 cases) bear the greater brunt. Following this WHO declaration, the Coronavirus Preparedness Group was constituted on January 31 in Nigeria (a country with 36 states and a Federal Capital Territory [FCT]). World Health Organization (WHO) categorized Nigeria as one of the 13 high-risk African countries with respect to the spread of COVID-19. Nigeria is as well among the vulnerable African nations, given the weak state of the healthcare system in the country, (Marbot, 2020).

In Nigeria today, the effect of Covid-19 pandemic can be seen across the economy of the country. Sociologically, the pandemic has led to international social disruption by restricting global social relations. The idea of “social distancing” negates regular social interaction, which is the bedrock of human society, (Amzat& Razum, 2020). A contagious disease of global health importance as well disrupts the usual norms of close physical contacts since the disease is been transmitted through contact with persons who already contracted the disease, (Amzat, 2020). Covid-19 deglobalizes the country in terms of human migration with airports closure, restriction of sporting activities with no spectators, and restriction of social events such as concerts, festivals, parties, and so on, (Daud & Leila, 2020).

Besides, the Covid-19 has led to the crash in the price of oil in Nigeria, which has exposed major fault lines in the Nigerian economy. Since independence in 1960, the Federal Government has consistently depended on crude oil exports as its major source of revenue, leaving its finances vulnerable to oil price shocks. Prior to the Covid-19 outbreak, the latest data show government health spending per capita was relatively low, standing at $27.84, far below the comparative figures in other major ECOWAS economies, Ghana and Côte d’Ivoire. However, external spending per capita was as well a sizeable contributor to total spending per capita, standing at $21.01. Low overall spending means the health system is likely to be overwhelmed, and, without additional funding, demand for health services, in particular critical care services, will far exceed capacity, (Zubair & Sanusi, 2019).

With crude oil exports generating 76% of Nigeria’s foreign exchange (and 11.8% of GDP), the fall in the price of oil by 60% since the start of 2020 to below $30 a barrel has dramatically reduced export revenues since the outbreak began. It is predicted that the reduction will cut export revenues by $5 billion (1.3% of GDP) over three months and $8.6 billion (2.2% of GDP) over six months, (Femi, Adeyemi, Sulaimon, Benjamin, & Bankole, 2020). Throughout the year, it is projected that the value of exports will fall by 34% due to the oil price shock alone. The International Monetary Fund has cut its projection for Nigeria’s 2020 economic growth to 2% from 2.5% due to plunging oil prices stemming from the coronavirus outbreak. The West African nation is the continent’s biggest producer and depends on crude for 90% of its exports

Other sectors of the Nigerian economy have as well been affected. Cocoa, which dominates the agricultural export sector, has seen prices fall by approximately $292/tons. Meanwhile, Nollywood, the second largest source of jobs in the country, employing around 1 million people, is facing challenges. Its major production center, Lagos State, was put on lockdown and cinemas have been ordered to close operation, which will have major knock-on effects on employment, (WHO, 2020). The Covid-19 crisis has led to falling foreign exchange reserves and major pressure on the Nigerian currency, the Naira. Stock markets are as well down. The latest inflation rate in Nigeria for February 2020 was 12.2%, a two-year high, with food inflation at 14.9%. Moreover, Nigeria’s GDP growth implications are worrying and much depends on oil prices. Assuming oil prices stay low, in a contained outbreak GDP growth is likely to decline from 2.5% to -3.4% in 2020.

Covid-19 outbreak has hurt businesses, the financial market and global financial economy generally, due to uncoordinated international governmental responses causing disarray in the international supply chain, (Nicola, Alsafi, Sohrabi, Kerwan, & Al Jabir, 2020). Lockdown and self-isolation significantly reduced production, demand and consumption of certain goods and services, (Yap, 2020). According to Olisah (2020), the Nigerian businesses affected most are the start-ups and small-scale enterprises, consultancy, hospitality and aviation sectors. The tourism, hospitality and aviation sectors are arguably the biggest losers in the Covid-19 outbreak era. The World Travel and Tourism Council has estimated that over 50 million jobs may be lost globally due to the Covid-19 pandemic, and the sector faces a great risk in that regard with great consequences as the tourism sector accounts for 10% of the World’s gross domestic product, (Faus, 2020). The aviation sector is struggling with unprecedented losses as various travel bans have been placed, with only highly essential travels allowed, (BBC, 2020). Some airlines have asked for bailout funds to enable their sustainability, with UK airlines asking for 7 billion Euros, (John, 2020). The Asset Management Corporation of Nigeria (AMCON) has also called out for bailout funds for Nigerian airlines to prevent a shutdown of the aviation sector, (Onehi, 2020).

It is expected that exports of countries like Nigeria with devaluing currency as a result of the fall in the price of commodities, will become more affordable, but the limited markets for non-important goods and services crowed-out the envisaged positive effect on net exports, (Femi, Adeyemi, Sulaimon, Benjamin, & Bankole, 2020). Another issue is the floating of the Naira; the Nigerian exchange rate policy reform is an overvaluation of currency that is fixed exchange rate.

Statement of the Problem

Covid-19 is a humanitarian crisis. A lot of people, families, and businesses across the world have suffered greatly from the unexpected crisis which has wreck so many activities globally. Its profound effects have been experienced the world over in the social and political environments and as well on the global business economy, (WHO, 2020). Nigeria is currently experiencing the brunt of corona virus outbreak due to the negative impacts across every sector of the nation’s economy.

The corona virus outbreak has had unprecedented and serious impacts on all aspects of human endeavor’s to how individuals work, communicate, trade, and live. The economic effects of the corona virus outbreak became obvious and several businesses both small and large scales have had their share of the pandemic effects, such as collapse of many businesses, retrenchment of workers, with employees and customers staying at home, among others, (Chukwuka, & Amara, 2020).

The Covid-19 crisis affects all components of aggregate demand. The fall in household consumption in Nigeria will stem from federal government lockdown order, thus causing consumers to spend mainly on essential goods and services; 2) low expectations of future income, particularly workers of gig economy sector which are engaged on a short-term, and the working poor of the informal sector of the economy; and 3) the loss of wealth and expected wealth with a decline in assets such as stocks and home equity, (Thelma, 2020). Nigeria is more of a gig economy and a large informal sector that contributes 65percent of economic output in Nigeria. The Covid-19 pandemic has drastically reduced the consumption commodities in general, and income-generating capacity of the gig and informal sector of the economy, thus reducing consumption expenditure generally, (Marbot, 2020).

The investments of corporate companies and individuals have drastically reduced as a result of the uncertainties that come with lack of knowledge about the duration of the pandemic outbreak, the effectiveness of fiscal policy measures, and the reaction of economic agents to fiscal policy measures, and negative investor believes causes turbulence in capital markets globally, (Temple, 2020). Importantly, the corona virus outbreak has led to a massive decline in stock prices, as the Nigerian Stock Exchange experienced its worst performance ever, since the 2008 financial crisis, which has eroded the wealth of investors, (Thelma, 2020).

Covid-19 pandemic has impacted negatively on the federal government of Nigeria, forcing it to review its budget and spending. Although, research showed that, businesses (large and small, or corporate) have been greatly affected, making some organizations to reduce their workforce, while some had threatened to do the same. This may increase the rate of crime and other problems in Nigeria and Africa at large. On the individual level, Covid-19 has affected income generation and earning, which has impacted negatively on families. The mental health of a lot of individuals are also of immense concern as a result of the stressors associated with the outbreak of Covid-19 in the country. Therefore, it is pertinent that various long term and medium-term plans should be available as a tool to resuscitate the Nigerian economy from the impact of the Covid-19 pandemic outbreak

Therefore, it is based on the above that, this study will examine the effects of Covid-19 on the political economy of Nigeria, using Lagos State as the study case.